Who Really Needs 2 Hour Delivery? Start-ups Are Betting That You Do.

Change in the supply chain, particularly in how consumers buy things, has been driven by Amazon for anumber of years. The latest area where Amazon is driving change is delivery to a consumer’s home or apartment. Over the past 6 months, I have been watching the blossoming of delivery service offerings in reaction to Amazon’s lead. For wholesale distribution companies who are already competing with Amazon’s next-day free delivery and 365 day return policies, these developments provide a look at what the next few months and years will bring.

At what point will a narrow delivery window be short enough? We now see retailers who have set up their owndelivery units that offer two-hour delivery from time of order placement. These companies will also meet a one-hour delivery window at the customer’s request. The fees for these deliveries – $5 per delivery – along with a purchase minimum are really only a token and certainly do not cover the cost of these services. Will anyone be able to make money from this labor and logistics-intensive service? And if these services are money losers, howwill the online companies and the delivery companies back away from them?

Amazon started this trend by building large “fulfillment centers” near population centers. These fulfillmentcenters offer same day delivery in 11 US cities. It didn’t take long for competition to step into the local delivery game. eBay Now, a local shopping service, will complete a shop and drop off in about an hour in New York City and announced in October 2013 that it was expanding to 25 cities. The approach of eBay Now is to hire local delivery drivers, each known as a “valet”, to go to the retail outlet, buy the requested product, stand in line to pay for it and then deliver it, all in less than an hour. In October, eBay acquired Shutl, a London company that uses technology to pair couriers at hundreds of firms with local orders for delivery.

A Silicon Valley venture capital backed company, Deliv, (whose droll advertising tag line is “DeliveryShortened”) has taken a different approach. They have struck deals with shopping mall operators to offer setdelivery times for purchases consumers make either at the mall or online from mall tenants. In their view, they have turned the retail outlets in these malls into a network of distribution centers. The mall operators benefit because consumers can ditch their bags and keep shopping.

The execution of this service is a disarmingly simple process. A consumer who has made purchases at several mall stores can drop off bags at a Deliv booth or with mall employees for later delivery. Online shoppers can arrange for delivery through the service as well. The malls are also employing runners to gatherbags customers leave at stores.

Deliv CEO Daphne Carmeli recently told the Wall Street Journal[LL1] : “Everyone today is competing with Amazon. The fact that brick-and-mortar stores have their inventory in cities, near their customersmeans that they can get that to customers quickly.” [i]

Deliv uses a crew of standby delivery drivers to pick up bags from the mall then bring them to customers’doorsteps. These drivers are often people with a vehicle and time on their hands such as real estate agents,students, aspiring actors and others. Other startups tackling same-day delivery include Instacart and Postmates.

While these developments are interesting to watch, will they last? Or, more realistically, will they be able to make a profit or go the way of earlier Web shopping companies such as Webvan, Urban Fetch and Kozmo. What wholesale distribution companies will need to deal with is the expectation that consumers have developed based on their experience with Amazon and the other online retailers.

In my view, the concept of “free” delivery has just about run its course. Free really means that the cost of delivery is buried in the product cost and this too has gone about as far as it can go. So what will happen next? As I see it, the online world will come up with a blend of offerings, for example low cost or free 2nd day delivery, moderate cost next day delivery, and high cost same day delivery. This pricing structure will also have minimum order sizes for each order and “surge” pricing for peak times, but the key ingredient will be choice.

1 Comment

Not taking you shopping bags home yourself might be useful for people with particular situations; traveling by public transit …. Otherwise it is possible this service is a fad that may fade. I think Mike is right, “this show is no where near over:”